Sunday, April 26, 2009

Voting with Your Feet

TWO OF Britain’s best known entrepreneurs are considering leaving Britain in protest against Alistair Darling’s new 50% tax rate, as leading figures from business and the City line up to warn of a talent exodus.

Hugh Osmond, the pubs to insurance entrepreneur, is thinking about a move to Switzerland. Peter Hargreaves, the £10m-a-year co-founder of Hargreaves Lansdown, the financial adviser, is looking at the Isle of Man or Monaco. More are likely to be follow.

Osmond, whose net worth is estimated at £230m, said: “A lot of people will be off. It’s highly unlikely that I will continue to have the UK as my country of residence. It’s just as easy to work from any close location — Switzerland or wherever.”

Robert Pfeiffer, a partner at Compass Advisers, a mergers and acquisitions firm, said that businesses such as his did not need to be based in Britain. “We all love living in London but in the end it becomes an economic decision. The clients don’t care.”

He and his partners were discussing a move to Geneva. “Do we want the hassle of moving? Probably not. But there comes a point economically when it’s hard to justify being here.”

I wonder: Do economists tend to migrate toward low-tax states? I have not noticed much evidence of it, but perhaps they should.

For example, Massachusetts has a top income tax rate of 5.3 percent, while New Jersey has a top rate of 8.97 percent. That difference of 3.67 percent shrinks to about 2.4 percent after taking into account that state taxes are deductible at the federal level, but it is still not trivial. If Paul Krugman and Eric Maskin had stayed at MIT and Harvard, rather than moving to Princeton, they each would have enjoyed about $29,000 more after taxes from winning the Nobel prize.

About Me

I am a professor and chairman of the economics department at Harvard University, where I teach introductory economics (ec 10). I use this blog to keep in touch with my current and former students. Teachers and students at other schools, as well as others interested in economic issues, are welcome to use this resource.